On February 1st, September call option with exercise price of $55 written on Aztec stock is sold
Question:
On February 1st, September call option with exercise price of $55 written on Aztec stock is sold for $4.375 per share and September put option with exercise price of $55 written on the same stock is sold for $6 per share. At the time, T-bills coming due in September are priced to yield 12%. Aztec stock is sold for $53 per share on February 1st. The time period between Feb 1st and expiration date of options is 8 months.
1.If the call option, Aztec stock, and T-bills are correctly priced, what is the appropriate value of a put option on February 1st? (1 point)
2.How to take advantage of this situation? Please show arbitrage profits using arbitrage table. (2 points)
Fundamentals of Corporate Finance
ISBN: 978-0078034640
7th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus